Here is a quick look on the questions related to mortgage financing which all the buyers must know.
Mortgage Financing Matters
PRE-APPROVAL IN WRITING:
It is highly recommended that if a buyer chooses to seek pre-approval, (before a property is purchased), such pre-approval should be in writing, confirming the terms of the pre-approval and mortgage.
PURCHASER'S RESPONSIBILITY TO CONFIRM FINANCING ARRANGED:
It is the buyer's responsibility to arrange any mortgage financing which might be required to complete the purchase. Once the mortgage is arranged, it will be the purchaser's responsibility to:
- satisfy any special requirements by the lender (e.g. - proof of income, proof of cash down payment, payment of other debt obligations, if required by the mortgage lender, etc.) in order to avoid last minute financing problems on closing day;
- confirm with the mortgage lender that mortgage instructions have been sent to our law office so that we can finalize processing the mortgage financing and obtaining mortgage funds for closing.
IF USING A POWER OF ATTORNEY:
Mortgage lenders NOW require a copy of the power of attorney document to be used (if any) for a mortgage since mortgage lenders MUST NOW pre approve any power of attorney form being used. Typically, to be approved, the borrower must be an existing customer of the bank OR must have signed the power of attorney document while in Ontario with witnessing done by an Ontario Lawyer.
CONDITIONAL ON FINANCING:
It is highly recommended that if financing is required (whether it has been pre-approved or not), any agreement of purchase and sale should be conditional upon written confirmation of financing terms from an institutional lender.
OPEN/CLOSED MORTGAGES:
Open mortgages may usually be paid off at any time without a penalty. Closed mortgages cannot be paid off before the end of the mortgage maturity date without being subject to a penalty (i.e. the greater of 3 months interest or the value of the difference in interest rates).
ACCELERATED PAYMENT OPTIONS:
Institutional lenders usually offer accelerated payment options in the form of bi-weekly or weekly payment plans that can reduce the duration of the mortgage by paying more towards principal and thereby reducing the total interest cost.
CMHC (CANADA MORTGAGE AND HOUSING CORPORATION) MORTGAGES:
Be aware that if a purchaser is arranging an insured mortgage (where the cash down payment is less than 20% of the purchase price), the mortgage lender (on closing) will deduct certain costs from the mortgage advance. PLEASE CONFIRM with the mortgage lender as to what costs will be deducted (For Example: 8% provincial sales tax on the mortgage insurance premium, appraisal fee, property tax holdback or interest adjustment, if any). For further information contact your bank branch.
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The big issue I see, especially with first time home buyers, is they don't realize how much closing costs are on a home purchase. Add to that they choose lenders that quote the lowest closing costs, thinking they are so smart, and not realizing that a Good Faith Estimates don't necessarily tell the whole truth.
Lost a deal today to BofA because their closing costs were several thousand lower than my quote. However, BofA LO did not quote the proper number of days of interest (off by 15 days), home owners insurance, HOA cert, prorated taxes, inspections, etc. Won't the buyers be unpleasantly surprised when they come to sign their closing papers. And they thought they had enough money to close with those lower closing costs, that in reality will be thousands of dollars higher.
I tried to discuss with them the concept of re-opening negotiations and asking the seller to help with closing costs. Guess the better choice for them was sticking with the lower (inaccurate quote). Unfortunately, I would say that realtors really need to be talking to the loan officer and finding out if they have disclosed the whole truth about the cost to close on a purchase. It shouldn't be that way, but if you want the sale to close, you might need to make that a habit.